* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not

be published and is not precedent except under the limited circumstances set forth in 5TH CIR.

R. 47.5.4.

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IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 07-30740

TIG INSURANCE COMPANY, as successor to International

Surplus Lines Insurance Company; ET AL

Plaintiffs

v.

EAGLE INC

Defendant - Appellee

v.

GRAY INSURANCE COMPANY

Defendant - Appellant

Appeal from the United States District Court 

for the Eastern District of Louisiana

(05-CV-179)

Before BARKSDALE, BENAVIDES, and DENNIS, Circuit Judges.

PER CURIAM:*

In this insurance case, we are presented with a contract interpretation

issue regarding an excess insurance policy. The excess insurance policy covers

the Appellee-Insured Eagle, Inc. (“Eagle”) on claims beyond the limits of the

United States Court of Appeals

Fifth Circuit

F I L E D

October 1, 2008

Charles R. Fulbruge III

Clerk
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insured’s underlying insurance policies. The contract interpretation question

presented is whether the Appellant-Insurer Gray Insurance Company (“Gray”)

is obligated under the policy to pay “up-front” the covered claims and defense

costs or “pay-back” those covered claims and defense costs. The district court

consulted external documents in interpreting the policy and determined that it

was ambiguous. Based on this finding of ambiguity, the district court applied

a presumption in favor of the insured and determined that the policy obligated

the insurer to pay “up-front” the covered claims and defense costs. We disagree.

We find no ambiguity in the policy and agree with the appellant that the policy

unambiguously requires the appellant only to reimburse or “pay-back” paid

claims and defense costs. Accordingly, we REVERSE the district court’s grant

of summary judgment in favor of Eagle, REVERSE the district court’s partial

denial of Gray’s motion for summary judgment, and RENDER judgment in

Gray’s favor. 

BACKGROUND

Appellee-insured Eagle holds two insurance policies relevant to this case.

PlaintiffTIG Insurance Company (“TIG”) provided Eagle with a general liability

insurance policy labeled “XSI-9538,” which provides coverage up to a certain

limit. Additionally, Appellant-Insurer Gray provided Eagle with an excess

insurance contract(“Gray policy”) termed an “aggregate excess reimbursement”

policy. Gray and Eagle designed the Gray policy to insure Eagle against loss

incurred by claims (and the defense of claims)that exceeded the limits of Eagle’s

underlying insurance policies, including XSI-9538. 

On January 21, 2005, TIG filed an action against Eagle and Gray seeking

a declaratory judgment as to the extent of its obligations under its policies.

Eagle answered and filed counter-claims against TIG and Gray alleging that

numerous lawsuits were filed against it and that TIG and Gray were obligated
1 Gray is XSI-9538's excess insurance policy.

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to defend those lawsuits under their policies. The only claims relevant to this

appeal are Eagle’s counter-claims against Gray, which calls for an interpretation

of Gray’s payment obligations under its excess insurance policy. 

Thus, the district court was called upon to decide the issue, which it

described as:

[W]hether [under the Gray policy,] Gray is obligated to pay “up front” for

claims asserted against Eagle, and for Eagle's defense costs (attorney’s

fees and expenses), or, instead, whether Gray must only “pay back” Eagle

for any of these amounts after Eagle provides proof that it actually has

already paid them. 

Before the district court, Gray argued that the Gray policy only obligates the

insurer to “pay back” or reimburse Eagle while Eagle argued that the Gray

policy obligates the insurer to pay “up front” claims and defense costs. Relying

on their contrasting interpretations, both Gray and Eagle filed motions for

summary judgment. 

In deciding the issue, the district court first found the Gray policy

language ambiguous as to whether the policy obligated the insurer to “pay back”

or pay “up-front” claims and defense costs. Even though the Gray policy was

termed a “reimbursement” policy and used the term “reimbursement” when

describing the insurer’s payment obligations,the district courtfound ambiguity.

Relying on the relationship between XSI-9538 and the Gray policy1 and a

reading of the Gray policy’s incorporation provision, which incorporated the

“Exclusions” and “Conditions” of the underlying policies, the district court

concluded that the Gray policy also incorporated, or must be read in conjunction

with provisions in XSI-9538's “Coverage” section, which requires the insurer to
2 Policy XSI-9538 is composed of one generic insuring agreement with only an

“Exclusions” but no “Conditions” section and several attached endorsementswith sections that

are labeled specifically as “Exclusions” and “Conditions.” The underlying policy’s insuring

agreement has a generic “Coverage” section that provides Eagle with general liability

insurance and imposes on the insurer a duty to defend: 

The [insurer] company shall pay on behalf of the insured all sums which the insured

shall become legally obligated to pay as damages because of personal injury or

advertising injury to which this insurance applies . . . and the company shall have the

right and duty to defend any suit against the insured seeking damages on account of

such injury . . . . 

Under these terms, the insurer is obligated to pay up-front any covered claims “on behalf ofthe

insured” and has a duty to defend, i.e., pay up-front and be responsible for the defense of

claims.

3 The district court granted Gray summary judgment on “bad faith” claims that are not

part of this appeal.

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pay claims and defense costs up-front.2 Therefore, the district court concluded

that one could reasonably read the Gray policy as similarly requiring Gray to

pay claims and defense costs up-front. After finding an ambiguity, the district

court applied Louisiana law’s presumption againstthe insurer and for coverage.

Accordingly, the district court ruled for Eagle in summary judgment. The

district court therefore partially denied Gray’s motion of summary judgment as

to the issue at question in this case.3 On the basis of the summary judgment

decision, which resolved the dispositive legal issues in the case,the district court

entered final judgment for Eagle. Gray now timely appeals the district court’s

summary judgment decision.

STANDARD OF REVIEW

This court reviews a district court’s grant of summary judgment de novo,

applying the same standards as the district court. Millennium Petrochems., Inc.

v. Brown & Root Holdings, Inc., 390 F.3d 336, 339 (5th Cir. 2004). Summary

judgment “should be rendered if the pleadings, the discovery and disclosure
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materials on file, and any affidavits show that there is no genuine issue as to

any material fact and that the movant is entitled to judgment as a matter of

law.” FED. R. CIV. P. 56(c). The only issue presented is a matter of contract

interpretation, which is an issue of law under Louisiana law. See Gebreyesus v.

F.C. Schaffer & Associates, Inc., 204 F.3d 639, 642 (5th Cir. 2000). “Contract

interpretation, including the question of whether a contract is ambiguous, is a

question of law subject to de novo review.” Millennium Petrochems., 390 F.3d at

339. 

ANALYSIS

Louisiana law applies in this case because the insurance policy was issued

in Louisiana for a Louisiana corporation. See In re Katrina Canal Breaches

Litig. 495 F.3d 191, 206 (5th Cir. 2007). Under Louisiana law, the rules of

interpretation for insurance contracts are as follows:

An insurance policy is a contract between the parties and should be

construed employing the general rules of interpretation of contracts set

forth in the Louisiana Civil Code. The parties’ intent, as reflected by the

words of the policy, determine the extent of coverage. Words and phrases

used in a policy are to be construed using their plain, ordinary and

generally prevailing meaning, unless the words have acquired a technical

meaning. An insurance policy should not be interpreted in an

unreasonable or a strained manner so as to enlarge or to restrict its

provisions beyond what is reasonably contemplated by its terms or so as

to achieve an absurd conclusion. Where the language in the policy is clear,

unambiguous, and expressive of the intent of the parties, the agreement

must be enforced as written. However, if after applying the other rules of

construction an ambiguity remains, the ambiguous provision is to be

construed against the drafter and in favor of the insured.

Reynolds v. Select Properties, Ltd., 634 So.2d 1180, 1183 (La. 1994) (citations

omitted). 

The district court found the contract language ambiguous and then relied

on external documents and legal presumptions to construe the contract language
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in favor of Eagle. In accordance with Louisiana law, we must first determine

whether an ambiguity exists before relying on legal presumptions and external

sources to construe the policy. See Sher v. Lafayette Ins. Co., 988 So.2d 186, 193-

95 (La. 2008); Shocklee v. Mass. Mut. Life Ins. Co., 369 F.3d 437, 441 (5th Cir.

2004) (rejecting the use of the company’s representations to discern an

ambiguity when construing the four corners of an insurance policy) (interpreting

Louisiana law). When a provision is subject to two reasonable interpretations,

it is ambiguous. See, e.g., Am. Bank and Trust Co. v. Continental Cas. Co., 476

So.2d 453, 457 (La. Ct. App. 1985). For the following reasons, we agree with

Gray that the Gray policy is clear and unambiguous and does not provide

coverage as Eagle contends.

A. The Gray Policy Is Clear and Unambiguous

The policy’s plain language is clear and unambiguous. The Gray policy’s

“Coverage” section plainly limits Gray’s payment obligations to “aggregate

reimbursements to the insured.” The first provision in the Gray policy’s

“Coverage” section states:

To pay promptly when due aggregate reimbursements to the insured that

are excess of the aggregate limit of the underlying policies scheduled in

the Declarations.

This provision plainly means Gray is only responsible for “reimbursing” or

“paying back” Eagle, the insured. The dictionary defines “reimbursement” as

“repayment” or “indemnification.” BLACK’SLAWDICTIONARY 1312 (8th ed. 2004);

see, e.g., Cottle v. Conagra Poultry Co., 954 So.2d 255, 259 (La. Ct. App. 2007)

(using this definition to interpret a contract and concluding that “reimbursement

requires one to put forth something in order to be paid something back.”).

Therefore, by operation of the phrase “reimbursement to the insured,” Gray is

only obligated, under the plain language of the policy,to repay Eagle after Eagle
4 A Gray policy provision in the “Conditions” section describes the need to exhaust

the underlying policy’s limits before payment is due:

No payment shall be due under [the “Coverage” section] of this policy until the

aggregate limit of the underlying policies has been exhausted by the payment of

claims.

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pays a claim or defense expense, i.e., “discharges a liability,” that is beyond the

limits of the underlying policy.4 Accord Grefer v. Travelers Ins. Co., 919 So.2d

758, 764 (La. Ct. App. 2005) (interpreting a similar Gray policy). In respect to

the issue presented, we agree with Gray that the policy is unambiguous.

B. The Incorporation Provision Does Not Render the Policy Ambiguous

In response, Eagle, relying on the district court’s reading of the policy,

contends that the “reimbursement” provision must be ambiguous, because, as

the district court concluded, “when considered together with the underlying

[policies] . . . [they] create ambiguity regarding the intended nature and scope

of Gray’s payment obligations under its policy.” According to Eagle, the policy

is ambiguous because while the Gray policy has “reimbursement” language, the

underlying policy in its “Coverage” section obligates insurers to pay “up-front.”

To justify reading the Gray policy in conjunction with the entire

underlying policy, Eagle and the district court point to the Gray policy provision

that incorporates the “Conditions and Exclusions” sections of the underlying

policy. The district court stated: “[A]s a starting point, the [underlying policy’s]

coverage and defense language must be considered in conjunction with the Gray

policy’s ‘Insuring Agreements’ and ‘Coverage’ provisions set forth above, as well

as Gray policy’s statement that it, ‘except as to limits, shall be subject to all the

Exclusions and Conditions of the underlying policies.’” However, this reading

contravenes the plain language of the incorporation provision and is therefore

unreasonable. 
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The relevant Gray policy provision states:

This policy, except as to limits, shall be subject to all the Exclusions and

Conditions of the underlying policies.

According to the district court and Eagle, this provision, in effect, incorporates

the entire underlying policy, including its “Coverage” provision, which obligates

the insurer to pay claimants directly “on behalf” of Eagle and imposes upon the

insurer a duty to defend. Such a reading is inconsistent with the policy

language. The incorporation provision plainly states that the Gray policy only

incorporates the “Conditions” and “Exclusions” sections of the underlying policy

and it does not refer to the “Coverage” section of the underlying policy. First, the

incorporation provision specifically refers only to “Conditions” and “Exclusions,”

and capitalizes both terms. See Garrell v. Good Citizens Mut. Ben. Ass’n, 16

So.2d 463, 466 (La. 1943) (noting that capitalization signals an intent to refer to

a specific provision or clause). Second, the Gray policy itself clearly

differentiates between its “Coverage” section and its “Conditions” and

“Exclusions” sections. Reading the Gray policy as a whole, the incorporation

provision also differentiates between these types of sections; itincorporates only

the “Conditions”and “Exclusions” sections on the one hand and does not

incorporate “Coverage” sections on the other. See LA. CIVIL CODE ART. 2050

(“Each provision in a contract must be interpreted in light ofthe other provisions

so that each is given the meaning suggested by the contract as a whole.”).

Accordingly, the incorporation provision is plainly limited to the incorporation

of only the “Conditions” and “Exclusions” sections of the underlying policy. 

Thus, because the incorporation provision does notinclude the “Coverage”

section,the district court erred as a matter of Louisiana law in incorporating the

“Coverage” section and finding ambiguity. Apart from the Gray policy’s

incorporation provision, Eagle and the district court provide no other textual or
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legal basis to read the Gray policy in conjunction with the entire underlying

policy in order to find an ambiguity. Any assumption, without a textual basis,

that a policy incorporates another contract or should be read in reference to

another contract contravenes Louisiana law. Louisiana law only recognizes the

incorporation of other contracts if the contract in question specifically refers to

other contracts in writing. See LA. REVISED STATUTES § 22:628 (“No agreement

in conflict with, modifying, or extending the coverage of any contract of

insurance shall be valid unless it is in writing and physically made a part of the

policy or other written evidence of insurance, or it is incorporated in the policy

or other written evidence of insurance by specific reference to another policy or

written evidence of insurance.”). Without a specific reference to the wholesale

incorporation of the underlying policy in the Gray policy’s text, one cannot

incorporate de facto or use the entire underlying policy to interpret the Gray

policy so as to create an ambiguity in the policy. See LA. CIVIL CODE Art. 2046

(“When the words of a contract are clear and explicit and lead to no absurd

consequences, no further interpretation may be made in search of the parties’

intent.”); Sher, 988 So.2d at 193-95; Shocklee, 369 F.3d at 441. Because the

district court consulted the whole underlying policy and specifically its

“Coverage” section to find an ambiguity without any specific incorporation ofthe

underlying policy or the “Coverage” section, it erred under Louisiana’s rules for

contract interpretation. As a result, it committed further error by effectively

ignoring the import of the contract’s plain and unambiguous use of the word

“reimbursement” when defining payment obligations before consulting external

sources to create an ambiguity. See LA. CIVIL CODE Art. 2047 (“The words of a

contract must be given their generally prevailing meaning.”). For the same

reasons, the district court’s conclusion that a duty to defend found in the

underlying policy can apply by default to the Gray policy (without specific
5 Gray does not dispute that condition (7) is incorporated into the Gray policy by virtue

ofthe incorporation provision, but Gray disagreeswiththe district court’s (andEagle’s) reading

of condition (7). 

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incorporation or any textual basis) simply because the Gray policy does not

expressly exclude a duty to defend is contrary to Louisiana law. 

In sum, we do not find any ambiguity in the incorporation provision. See

La. Ins. Guar. Ass'n v. Interstate Fire & Cas. Co., 630 So.2d 759, 770 (La. 1994);

Gulf Fleet Marine Operations, Inc. v. Wartsila Power, Inc., 797 F.2d 257, 261 (5th

Cir. 1986); Am. Bank and Trust Co. v. Cont’l Cas. Co., 476 So.2d 453, 457 (La.

Ct. App. 1985). We reject Eagle’s attempt to create ambiguity in the text by

referencing, contrary to Louisiana law, sections in the underlying policy not

specifically incorporated into the Gray policy. 

C. No Other Provision Renders the Policy Ambiguous

The district court also suggested that condition (7), which appears in the

“Conditions” section of the underlying policy,5supports an interpretation of the

Gray policy that would obligate Gray to pay up-front all covered claims and

defense expenses that exceed the limits of the underlying policy. Again, based

on the plain language of the policy, we find this argument unavailing. 

Condition (7) states: 

When it has been determined that the Company is liable under Limits of

Liability (B) of this Policy, the Company will, thereafter promptly

reimburse the Assured, (or, when the Assured is legally obligated to pay

or by final judgment has been adjudged to pay any person or persons as

damages, the Company shall pay on behalf of the Assured) for all sums

upon receipt of a monthly or quarterly statement from Gray & Company,

Inc., . . . .

The referenced provision, “Limits of Liability” (B), is in another part of the

underlying policy and it states that:

Amount of limit: . . . In respect of up to $35,000 ultimate net loss in respect
6 The relevant provision in the Gray policy states that Gray shall: 

Investigate all claims arising under this policy and the underlying policies and

secure witnesses thereof and endeavor to secure all available information

pertaining to such claims for the use of the Attorney in the adjustment of any

such claim and for the information, study and use of the Safety Engineers in

reduction of accident hazards. 

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to each and every accident . . . .

(emphasis added). Further, “ultimate net loss” is defined by the underlying policy

to include loss associated with covered claims and defense expenses:

Under Limits of Liability (B), the words “Ultimate Net Loss” shall be

understood to mean the sums paid in settlement of losses for which the

Assured is liable . . . and shall include allocated legal fees and expenses

including legal expenses in connection with litigation . . . .

Reading all of these pertinent provisions together, condition (7) plainly allows

Gray to reimburse “ultimate net loss” only after Eagle or a third party has

already paid the sums, including defense costs, in settlement of claims. Reading

this provision in conjunction with the fact that Gray policy’s “Coverage” section

only uses “reimbursement” language, the contract as a whole plainly provides

that Gray is only obligated to reimburse or “pay back” Eagle after Eagle or a third

party has already paid a claim or defense costs. See LA. CIVIL CODE ART. 2050

(“Each provision in a contract must be interpreted in light of the other provisions

so that each is given the meaning suggested by the contract as a whole.”). 

Finally, the district court highlights the fact that the claims handling

provision in the Gray policy requires Gray to provide specified assistance to the

attorney handling the claim for the underlying insurer.6 However, this provision

neither authorizes nor requires Gray to hire, supervise or compensate that

attorney, all of which further makes clear that Gray is not obligated to act as a

liability insurer for Eagle in respect to claims covered by the underlying policy.

Because this provision does not specifically discuss Gray’s payment obligations,
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this provision cannot render the specific “reimbursement” language in the Gray

policy ambiguous.

CONCLUSION

We agree with Gray that, in respect to the issue in this case, the words of

the Gray policy are clear and unambiguous and lead to no absurd consequences;

that under the plain meaning of those words, the Gray policy is a “pay-back” or

reimbursement policy, not a liability policy; and that under its policy Gray is only

required to reimburse Eagle for claims and expenses paid by Eagle or for it by a

third party. See LA. CIVIL CODE Art. 2046 (“When the words of a contract are

clear and explicit and lead to no absurd consequences, no further interpretation

may be made in search of the parties’ intent.”). The district court, however, made

further interpretation of the contract and found ambiguity by reading the policy

in conjunction with extraneous documents. This approach contravenes Louisiana

rules for contract interpretation, which provide that no further interpretation

may be made if the contract clearly and unambiguously resolves the issue

presented without absurd consequences. Id. Other provisions of the Gray policy

cited by the district court also do not provide a contrasting reasonable reading of

the policy so as to render the policy ambiguous. We now REVERSE the district

court’s grant of summary judgment in favor of appellee Eagle, REVERSE the

district court’s partial denial of Gray’s motion for summary judgment, and

RENDER summary judgment in Gray’s favor.